Philippines: Competitiveness vs. friendliness

Michael Alan Hamlin

Posted on January 19, 2012

The Philippines may not be a very competitive place, but boy is it friendly. In the Heritage Foundation’s 2012 Index of Economic Freedom, the Philippines improved its standing slightly, ranking 107 out of 179 countries. That rank puts the Philippines solidly in the category of “mostly unfree,” five places behind Cambodia and eight rungs ahead of Indonesia. Vietnam, the current darling of investment analysts, sits at 136.

There is cause for cheers, however. The Philippines is the eighth friendliest country in the world for expatriates, according to a quality of expatriate lifestyle survey conducted last year by HSBC. The survey covered just 31 countries, and another mostly democratic Asian country—Thailand—came out on top. It was followed by less democratic but quite friendly Saudi Arabia, Singapore, and Egypt.

The top 10 was rounded out by Switzerland, Hong Kong, Malaysia, the Philippines, Mexico, and Japan. Thailand also did reasonably well in the Index of Economic Freedom ranking, coming in at 60, significantly ahead of the Philippines despite several years of economic upheaval, street protests, and severe national calamity. You have to wonder just how the Thais manage to maintain a relatively positive image, attract billions of dollars in investment annually, and welcome more than 10 million visitors to their shores every year.

There is more good news for the Philippines in the HSBC study. Or more precisely, there is some pretty bad news for India, the Philippines’ biggest competitor for IT-BPO investment. India ranked 22 in terms of expat friendliness. Another competitor for IT outsourcing investment, China, fared even worse at 25. These two large population competitors have a lot going for them, but expatriates would rather live here.

India and China, I imagine, don’t mind. Expatriates can, after all, be troublemakers. They infuse their own cultural preferences into ancient cultures, undermining values and upsetting the historical natural order. That can be particularly irksome for the upper classes in India, and the princelings in China who have waited not-so-patiently for their time to lord it over the masses in order to maintain their privileged lifestyles.

But I digress. In the HSBC survey, Thailand outperformed the Philippines significantly in the economics category. But in key subcategories, the Philippines did better. One conspicuous example is income. Expatriates in the Philippines appear to make significantly more money than their counterparts in Thailand. It’s also easier to hire domestic help, enjoy a swimming pool, and drive a nicer car. And, by a small margin, enjoy more luxurious holidays. It really is more fun in the Philippines!

The competition for expatriate affection is much closer when it comes to the experience of living in the Philippines and Thailand. Expatriates in the Philippines feel more welcome at work than their Thai-based colleagues by a long shot. Same thing when it comes to making local friends. Integrating into the community, social life, work culture, and fitting in are all easier in the Philippines. Where Thailand outdoes the Philippines is health care, transport, local shops, and schools.

Being perceived as a friendly country is an important brand attribute. Most of the countries that outrank the Philippines do so because they promote that attribute more consistently and effectively than the Philippines. They spend a lot more money than the Philippines doing that, too, up to several hundred million dollars annually. A year from now, it’ll be interesting to see if the Department of Tourism’s crowdsourcing brand identity strategy has made an impact on how friendly the Philippines is perceived compared to, say, Saudi Arabia.

For numbers-pushing investors, however, economic freedom matters, at least when it comes to investor opportunity. The Philippines improved in the latest Index of Economic Freedom in the regulatory efficiency category, reporting better scores in all three criteria, business freedom (54.3), labor freedom (51.7), and monetary freedom (77.1). The first two scores fall in the mostly unfree area, however. Monetary freedom is ranked mostly free.

The only other area the Philippines posted improvement was in fiscal freedom, where it rose to 70.1, or borderline between moderately free and mostly free. Government spending rank is impressive at 89.7 (free), but actually fell somewhat. That must have come as mixed good news for the administration of President Benigno S. Aquino III, which has been accused of hobbling the economy by not spending. Investors are happy, just not as happy as they should be.

The real alarm bells for the Philippines are property rights (30.0) and freedom from corruption (24), with scores showing a repressed state. No surprise there. Trade freedom (75.5) is good, but investment freedom (40) and financial freedom (50) are uninspiring.

Some will argue that such surveys matter little. In some ways they don’t. But in important ways they do. And the Philippines should work to do better.